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Venezuela Business Forecast Report Q2 2014

  • January 2014
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views

We expect economic growth to remain sluggish, characterised by
a slowdown in private consumption, net exports, and investment.
President Nicolás Maduro has consolidated his power in recent
months, bolstered by a strong PSUV performance in the December
8 elections, and will continue Chávez’s policies of elevated social
spending, resulting in sizeable fiscal deficits.
Inflation will remain elevated, at the highest level in Latin America,
and the operating environment will remain very precarious for foreign
multinationals in the country.

Major Forecast Changes

We have upgraded our Venezuelan fiscal deficit forecast for 2014,
from 9.6% of GDP to 7.8%, due to reforms which will reduce some
types of government spending.
T aking into account the most recent data made available by the
Banco Central de Venezuela and our outlook for the oil sector, we
have downwardly adjusted our current account surplus forecast for
2014, from 3.2% of GDP to 1.9%.

Key Risks To Outlook

Upside Risks: Higher than expected oil prices and more investorfriendly
policies could see real GDP growth exceed our forecast.
Downside Risks: The potential for elevated political tensions to
materialise in a wider political crisis could see the economy enter a
recession as soon as 2013.

Table Of Contents

Venezuela Business Forecast Report Q2 2014
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
Elections Not Likely To Alter Long-Term Economic Decline 8
Venezuela's municipal election results are a disappointment for the opposition, which trailed the ruling party by seven percentage points
in the popular vote according to preliminary estimates Although our fundamental concerns about macroeconomic governance and
political risk in the country remain, the outcome will afford the administration of President Nicolás Maduro sufficient political cover to
enact modest reforms without losing face, and may lead to a short-term improvement in the country's credit profile
Table: Political Overview 8
Long-Term Political Outlook 9
Post-Chávez Era To See Greater Turbulence 9
Venezuela is entering a new era following the election of Nicolás Maduro as successor to the late President Hugo Chávez, but the
narrowness of his victory points to an increasingly polarised electorate, which will make the country harder to govern With the economy
looking weak, Maduro could well lose office before his term expires in 2019 Regardless of who rules Venezuela, the country will face
formidable economic challenges, such as excessive state control, high inflation, corruption, violent crime and a brain drain
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
High Inflation And Private Sector Stagnation To Keep Growth Low 14
Growth in Venezuela will continue to be constrained in 2014, as soaring inflation impacts household purchasing power, oil production
stagnates, and private sector investment remains wary of a hostile operating environment We are forecasting real GDP growth of 1 5%
in 2014, down from 2 0% estimated for 2013
Fiscal Policy 16
Despite Positive Reforms Ahead, Gaping Fiscal Deficit To Persist 16
Recent decisions by the administration of President Maduro to rein in spending paint a more positive picture for Venezuela's fiscal
account, and we have upgraded our forecast for 2014 accordingly However, stagnant oil production, expensive yet politically important
social programmes, the need for substantial infrastructure upgrades, and rising security costs will keep the deficit wide We are
forecasting a budget shortfall equal to 8 6% of GDP in 2014
Balance Of Payments 18
Stagnant Oil Production To Weigh On Current Account 18
Venezuela's balance of payments position is under increasing pressure, as oil export growth has stagnated and non-oil exports have
failed to make up for lost ground, contracting substantially in recent years We are forecasting a decline in the current account surplus
from an estimated 2 2 % of GDP in 2013 to 1 9% of GDP in 2014
Exchange Rate Policy 20
Unofficial Devaluation Impact: Keeping An Eye On Fundamentals 20
Venezuelan authorities, cognisant of the severe market distortions created by a grossly overvalued exchange rate, but hesitant to
overtly devalue due to political considerations, have opted for a more covert devaluation, expanding the role of the auxiliary source of
foreign exchange known as Sicad There are many unknown variables about how the new system will affect the economy, and we will
be watching the black market rate, the scarcity index and foreign reserves to judge the success of the policy For now, we maintain our
view that authorities will downwardly adjust the official exchange rate in 2014
Business Monitor International Ltd www businessmonitor com 3
Chapter 3: 10-Year Forecast 23
The Venezuelan Economy to 2023 23
Growth Outlook In A Post-Chávez Era 23
Although the Venezuelan economy is likely to experience a tough time over the next few years, we believe there is significant economic
growth potential over the long term In our view, a more moderate and market-friendly government is needed, which is willing to make
the necessary structural reforms to unlock this potential
tab le: Long -Term Macro economic For ecas ts 23
Chapter 4: Business Environment 25
SWOT Analysis 25
BMI Business Environment Risk Ratings 25
Business Environment Outlook 26
Institutions 26
Tab le: BMI Busin ess And Opera tion Ris k Ratings 26
Tab le: BMI Lega l Fram ewor k Rating 27
Infrastructure 28
Market Orientation 29
tab le: Top Expor t Destina tions (US$MN) 30
Operational Risk 31
Chapter 5: Key Sectors 33
Autos 33
table: Autos Sales, 2010-2017 34
table: Autos Trade, 2010-2017 35
table: Autos Production, 2010-2017 35
Food and Drink 36
tab le: Food Consump tion Indica tors - His torica l Data and For ecas ts, 2010-2017 36
tab le: Alcoho lic Drin ks Volum e/Value Sales - His torica l Data and For ecas ts, 2010-2017 37
tab le: Sales Breakdown By Retai l Forma t Typ e 38
Other Key Sectors 41
TABLE : Oil and Gas Sector Key Indica tors 41
TABLE : Pharma Sector Key Indica tors 41
TABLE : Defenc e and Securi ty Sector Key Indica tors 42
TABLE : Infras truc tur e Sector Key Indica tors 42
tABLE : Freigh t Key Indica tors 42
TABLE : Telecoms Sector Key Indica tors 42
Chapter 6: BMI Global Assumptions 43
Global Outlook 43
Momentum To Continue In H114 43
Tab le: Globa l Assump tions 43
Tab le: Develop ed States, Real GDP Grow tH, % 44
Tab le: Em erging Mar kets, Real GDP Grow th, % 45

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